Inadequate medical care, inmate-on-inmate violence, and overcrowding routinely inflict extraordinary suffering on inmates, suffering that is incompatible with the Eighth Amendment and international human rights norms. Among the factors contributing to this widespread cruelty is a principal-agent problem: relative to voters as well as courts, local officials have greatly superior knowledge of conditions in their (typically isolated) prisons, and an incentive to shirk on the effort to implement difficult and expensive reforms.

In this short essay, I propose a novel market-based reform to ameliorate these problems. The fundamental idea is simple. Every year, each inmate will be entitled to elect to change prisons once per year. Should an inmate exercise this option, s/he will be randomly assigned to another prison within the jurisdiction. Sanctions will be imposed on prison operators whose inmates exercise an excessive number of exit rights.

The object will be to put market tools to work in improving prison conditions in three ways. First, inmates’ exercise of their exit rights will replicate the conditions of a competitive market in prison services: the worst prisons can expect long-run financial losses, which in turn will give those who operate them an incentive to improve conditions for inmates. Second, inmates’ exercises of their options will transmit information to elected officials and voters about the relative conditions of prisons in the jurisdiction. Third, operators of private prisons can be expected to demand a price premium for the risk of suffering sanctions if too many prisoners exercise their options; the price demanded will, in turn, reflect their assessments of the risk of suffering such sanctions, and thus of the conditions in their prisons. Accordingly, the price mechanism, in Hayekian fashion, will bring it about that they reveal their private information about the conditions that prevail in the prisons they operate to elected officials and, ultimately, voters.